LME MORNING - Metals tumble again, economic woes prevail and euro buckles

By: Martin Hayes

London 04/10/2011 - Base metals were on the retreat during LME premarket trading on Tuesday, with short-term sentiment undercut by falling equity markets and a weak euro, which hit new nine-month lows against the dollar.

The unresolved Greek debt morass and sluggish economic backdrop, combined with the week-long holiday in China and LME Week participation, meant that markets were less busy than normal. This created the conditions for short-term opportunistic bounces, similar to those on Monday afternoon.

"The big question for industrial metals is whether players will view gains as a bargain-hunting opportunity or a relief rally, with the debt situation facing Greece and the eurozone likely to sway the balance," FastMarkets analyst James Moore said.

Equity markets were falling heavily across the board this morning - the UK FTSE was down more than two percent - while the euro fell as low as 1.3142 and then settled back at 1.3190.

"This is a patchy week - we have people travelling as well - so we are going to see a lot volatile moves on a daily basis. There was a covering bounce [on Monday] but I am not sure if there was anything more than that," a trader said.

Greek officials said on Monday that that the country would miss its fiscal deficit target this year. Eurozone finance ministers agreed that Greece could wait until mid-November before receiving the next instalment from its emergency aid programme.

Conditions will remain jumpy, given the swings that will continue in wider financial markets, while the metals will also wary of post-LME Dinner evening trading tomorrow, which coincides with October traded options expiries as well.

"You never know - we had that big sell-off after the dinner a few years ago, so we'll watch out for that," the trader said.


Copper backpedalled below $7,000, trading at $6,845 per tonne, down $165 or 2.3 percent. Prices had fallen as far as $6,712 - a drop of more than four percent - with the market vulnerable to a retest of Monday's 14-month low of $6,635.

Today, there was a net 75-tonne increase in warehouse stocks to 475,025 tonnes, the highest since June 13, but this was dwarfed by a surge in cancelled warrants - the metal booked for removal.

These jumped 84 percent or 27,325 tonnes to 59,900 tonnes, the highest since May 2009, due to large de-warrantings in Gwangyang and Singapore.

Zinc was trading at $1,881, down $12. Stocks fell 3,125 tonnes to 815,700 tonnes, the lowest since April, while cancelled warrants leapt 42.5 percent or 25,950 tonnes to 87,000 tonnes, a one-month high, due to another big cancellation in New Orleans.

Nickel was trading at $18,500, down from the previous $19,095, as yesterday's vicious snap rally petered out. The market had been boosted by news of the closure of Nickel Asia Corp's mine in the Philippines after an attack by rebels.

Elsewhere, aluminium seesawed around $2,200, trading recently at $2,210, up $7. Stocks fell 5,500 tonnes to 4,558,250 tonnes. Lead fell $17 to $1,943, while tin was $300 lower at $20,400.

Steel was indicated at $541/560, while the minors were neglected.

(Editing by Mark Shaw)